2020 has been a major year for cryptocurrencies as a whole. The attention, investment, and value gains for popular crypto such as Bitcoin were off the charts, and the results are quite apparent. Because of all these, Bitcoin’s value has been going through the roof, and institutions are taking notice. As of this article’s writing, Bitcoin is trading for more than $18,000, which is a feat that hasn’t been seen since 2018.

Bitcoin mining today is a bit different than it was a couple of years ago. Several years back, you needed something powerful enough to solve some computational tasks wherein several Bitcoin was the reward. Today, the process of mining Bitcoin is not that complex, and the rewards are not as much as they were before. To compete properly, institutions have resorted to building mega-facilities to make it easier to capitalize on their venture. As such, here are a few reasons why major Bitcoin mining institutions are inevitable.

Obtaining new-gen hardware

Every year, technology and mainly processors get better. Performance specs on a Bitcoin mining rig purchased back in 2017 and one purchased in 2019 or 2020 have huge differences. Since not many companies are manufacturing these rigs, it’s important to have the right relationship with the manufacture. This is to ensure that you get the machines you need during upgrades. In the United States, about 17 publicly listed companies primarily work on mining, and several ASIC financiers purchase large quantities of machines quarterly. This means that to compete fairly, you need to be in the game. To do that, you need to have a very endowed wallet as you’ll be competing with others of similar means.

Economies of scale

Although Bitcoin is the ultimate proponent for decentralization, it’s mining heavily benefits size and economies of scale therein. Big mining companies normally receive substantial discounts on their ASIC retail quotations, translating into major savings. What’s more, it usually takes about 300 days to recover the purchase price for this new equipment. When you get a good discount on the rigs, you find that the repayment period is lessened by about a month. This translates to profits earlier than expected. Additionally, large miners don’t need as much cash for a down payment as those mining for retail. Industry numbers suggest large-scale miners can get away with a 20% deposit while those in the retail space have to part with at least 50%. Additionally, the cost per megawatt is lower on a 30-megawatt facility is much lower than you’d get for a 3 MW one.

Lowering the operational costs

Cheap power doesn’t come for a song. To get your power at good rates, you need a lot of capital to create an environment conducive to that. This will often mean buying or leasing the land, building up the infrastructure, purchasing generators, other equipment, and even funding their performance bonds. While it is possible to mine Bitcoin using small, cheap sources of power, it becomes incredibly difficult to scale up the operation. Apart from buying electricity at a cheaper rate, large miners are capable of negotiating lower firmware development fees, pool fees, and the ASIC management software.

Access to funding

As the cost of mining Bitcoin continues to increase, it’s becoming incredibly difficult for an average person to mine and do it lucratively. Because of what it takes to mine these coins, you’ll find that a company without proper financial muscle will suffer quite a bit. For instance, setting up a 10 MW farm with the state of the art equipment can easily set you back $10 million depending on specs. Since this equipment is replaced after a few years, profitability must be visible to justify further investment. In 2020, we have seen a lot of ASIC financing, which attempts to gain profits from this highly lucrative business. Because of this, it’s becoming increasingly difficult to make a handsome return from small scale Bitcoin mining.